Gauntlett on Intellectual Property/Antritrust Insurance : Insurance Policyholder Advocate & Attorney David Gauntlett : Gauntlett Law Firm : Insurance Recovery, Policy Interpretation : Irvine, Orange County, California

According to the court, Climb Tech “further alleged that Aearo ‘confuses the consuming public by falsely claiming in its sales materials ... that Aearo/SafeWaze has “[t]he only removable/reusable anchor point for concrete applications,” accompanied by a picture of Climb Tech's expansion bolt device.’ ” Id. at *2.

Analyzing a 1986 ISO policy, the court rejected AISLIC’s argument that the word “solely” in its definition of advertising injury imposes a more rigorous requirement “on the insured, requiring ‘nothing less than a showing that the insured’s advertising be the ‘sole cause’ of the alleged injury’ . . . quoting Discover Financial Services LLC v. Nat’l Union Fire Ins. Co. of Pittsburgh, 527 F.Supp.2d 806, 820, 823 (N.D.Ill.2007).” Id. at *5.

The pertinent policy definition of advertising injury read, “injury arising out of your advertising activities as a result of one or more of the following offenses . . . .” Id. at *6.

Interpreting the word “solely” the court determined that the better reading of it was “if the insured successfully makes that showing for at least one particular claim, then the general rule applies and the insurer is obligated to defend the entire suit.” Id. at *5.

The court readily found that “misappropriation of advertising ideas” or “style of doing business” includes trademark infringement, citing Auto Owners Ins. Co. v. La Oasis, Inc., 2005 WL 1313684, at *7-9 (N.D. Ind. May 26, 2005); Fidelity & Guar. Ins. Co. v. Kocolene Marketing Corp., 2002 WL 977855, at *8-9 (S.D. Ind. March 26, 2002). Id. at *6. The Advance Watch approach was inconsistent with Indiana law citing Cincinnati Ins. Co. v. BACT Holdings, Inc., 723 N.E.2d 436, 439-40 (Ind. App. 2000) (ambiguities in policy language are “strictly construed against the insurer”). Id. at *6.

Trademark infringement claim fell within the offense of infringement of “title” citing Charter Oak Fire Ins. Co. v. Hedeen & Companies, 280 F.3d 730, 735-36 (7th Cir. 2002). Id. at *7.

Reading Erie Ins. Group v. Sear Corp., 102 F.3d 889, 894 (7th Cir. 1996) (applying Indiana law) with Discover Financial Services LLC analyzing a similar “arising solely out of” policy language the court determined that:

[U]nder the policy, the insured's activities promoting its goods or services must be the sole cause of the alleged injury that brings the underlying suit within the policy's coverage, though not the sole cause of all injuries alleged in the case.

Id. at *7.

Trademark infringement suit met that standard:

Climb Tech's trademark infringement claim satisfies that requirement. Without Aearo's advertising activities, Climb Tech would not have had a claim for relief under 15 U.S.C. § 1125(a), the federal trademark statute. . . . Climb Tech alleged instead that Aearo, before selling its infringing products, first marketed those products “through the same dealer network that previously resold” Climb Tech's products.

Id. at *7.

The court emphasized:

What is important here is not the mere use of the words “market” or “promote” but the fact that the only activities for which Aearo could possibly be held liable under § 1125(a) were advertising activities or followed directly from those advertising activities. . . . Even if Aearo had only “marketed” and “promoted” its infringing products using Climb Tech's trademark without making a single sale, it would still have been liable for trademark infringement. See CAT Internet Systems, Inc. v. Providence Washington Ins. Co., 153 F.Supp.2d 755, 762 (E.D.Pa.2001) (holding that trademark infringement was “caused by” advertising activities because the injury “was complete in the advertisement, requiring no further conduct”). . . .
Where the insured's advertising activities were the only activities alleged to give rise to an injury, and those activities were sufficient to give rise to the injury, then it is fair to say that the injury arose solely from those advertising activities.

Id. at *7-8.

As “Climb Tech could have recovered on its trademark infringement claims without proving that Aearo acted with knowledge of falsity,” the court found a duty to defend implicated. Id. at *8.

The fact that additional damages including punitive damages under Federal and Texas law were available, is of no moment in analyzing the duty to defend as such contentions were not proven.

Citing Orlando Nightclub Enterprises, Inc. v. James River Ins. Co., 2007 WL 4247875, at *8 (M.D.Fla. Nov.30, 2007) the court opined that:

Because the duty to defend is broader than the duty to indemnify, the insurer is thus required to defend the insured if the underlying lawsuit could succeed on any theory without proof of intentional conduct.

Id. at *8.

The Del Monte Fresh Produce N.A., Inc. v. Transportation Ins. Co., 500 F.3d 640 (7th Cir. (Ill.) 2007) court was distinguishable as it addressed claims of “known” fraud. The court also suggested that Del Monte was inconsistent with the court’s reasoning in Cincinnati Ins. Co. v. Eastern Atlantic Ins. Co., 260 F.3d 742, (7th Cir. 2001) by noting the issue was, “could the insurer arguably have been held liable on an otherwise covered claim without proof of intentional misconduct?” Id. at *9.

On the facts before it, the court found that liability could be established without proof of intentional conduct, therefore the exclusion did not bar a defense.

To the extent that AISLIC's cases hold that the knowledge of falsity exclusion applies whenever the complaint alleges intentional misconduct, regardless of the possibility of the insured's liability on a covered claim, they are unpersuasive as guides to Indiana law. . . . When the legal theories in the underlying complaint leave open the possibility of the insurer's duty to indemnify, the insurer's broader duty to defend is triggered and the knowledge of falsity exclusion does not apply.

Id. at *10.

The court rejected the argument that there was a brief of confidentiality and distribution agreements between Climb Tech and Aearo and that that was the genesis of asserted liability and thus the breach of contract laws precluded a defense.

As Judge Rodovich has explained, Indiana's courts have not spoken on this question. He predicted in a thoughtful opinion, however, that Indiana would follow the majority of other jurisdictions so that a breach of contract exclusion would apply only if the claim in question would not have existed but for the insured's alleged breach of contract.

Id. at *10.

The phrase “arising out of” meant “caused by” under applicable Indiana authority and thus the exclusion should be properly and narrowly construed.

In this sense, Aearo was able to infringe the trademark only because of its agreement with Climb Tech. . . . The trademark infringement claim, however, is based on a legal theory entirely different from a claim for breach of contract. Climb Tech's rights in its trademark, the rights on which it is able to sue for trademark infringement, came into being before any contract with Aearo was signed and were independent of any such contract. See Hugo Boss, 252 F.3d at 623 n. 15; J.P. Structures, 1997 WL 764498, at *4.

Id. at *11.

No further adjudication of any issues necessary since the insurer, having declined to defend and to participate in settlement, was bound the reasonable settlement made and attorneys’ fees incurred.

Under Indiana law, when an insurer denies coverage and refuses to defend its insured, it will be held liable for the costs of defense and settlement if it turns out to be wrong about its coverage obligations. See Frankenmuth Mutual Ins. Co. v. Williams, 690 N.E.2d 675 (Ind.1997); Employers Ins. of Wausau v. Recticel Foam Corp., 716 N.E.2d 1015 (Ind.App.1999).

Id. at *11.
 

The court found determinative the recent decision of United National Ins. Co. v. Spectrum Worldwide, Inc., 555 F.3d 772 (9th Cir. 2009), which interpreted an identical exclusion finding it applicable to the full range of offenses. Id. at 778.

Spectrum follows a problematic analysis of the four offense subparts. It fails to recognize that 4 minus 2 equals 2, not 4. Only subparts (a) and (b) are implicated by the use of the “advertising injury” definition. “Advertising injury” is defined by its four constituent elements that comprise the pertinent offenses. All must be considered when the phrase “advertising injury” is used as a predicate to those items which are excluded. Thus, four items within “advertising injury” demark the possible scope of the covered claims; and only two “arising out of oral or written publication of material” are implicated since only two of the four offenses have such an element in play. Exclusions are to be narrowly interpreted and this is not the path followed by the Ninth Circuit in Spectrum.

The first publication exclusion was not limited to a trade dress claim and moreover there is nothing to suggest “material” as used in the policy requires a tangible option such as packaging, citing Aloha Pacific, Inc. v. California Ins. Guarantee Assn., 79 Cal. App. 4th 297, 319-20 (2000).

It would make no sense for the exclusion to apply only to the specific packaging or label and not to the infringing trademark that is the subject of the underlying action.

Id. at *5.

In essence the court found that the same mark was used before, after and during, and thus the exceptions to applicability of the IP exclusion had no reign here.

The pertinent marks “Old Man Que Huong Brand” and “Que Huong” mark, in the insured’s view, differed from certain marks initiated during the policy period. To wit,

“Bun Tuoi Hieu Que Huong Brand,” “Bun Que Huong Dac Biet,” and the Water Buffalo design mark consisting of the words “Que Huong” and any other mark confusingly similar to Great River's marks) . . . .

Id. at *6.

A simple republication of the same improper words “Que Huong” prior to the policy period was the basis for asserted trademark liability.

The underlying action focused on the use of a trade mark, “Que Huong.” Great River did not allege an infringement based on Kim Seng's use of any other words or images. Great River alleged in the underlying action infringement by any Kim Seng trademark using the words “Que Huong” as part of a trademark that was confusingly similar to Great River's Que Huong mark. Great River has no claim as to any words other than “Que Huong.” Even with the addition of descriptive words and logos, the use of the term “Que Huong” still suggests that the Kim Seng product is from the same source as products bearing the original “Que Huong” mark – the Great River product.

Id. at *7.

Distinguishing but affirming the viability of Taco Bell Corp. v. Continental Cas. Co., 388 F.3d 1069, 1072-73 (7th Cir. 2004), the court found a distinct act of potential liability for common law misappropriation involving the specific episode in the barking feisty Chihuahua character used by Taco Bell to promote its food where they had it popping out of a cardboard cut-out.

The case fell within Ringler Assocs., Inc. v. Maryland Cas. Co., 80 Cal. App. 4th 1165 (2000), which found that immaterial variation from the original work to that republished was not sufficient to avoid the applicable exclusion.

“[T]he first-publication exclusion language at issue is intended to and in fact bars coverage of an insured's continuous or repeated publication of substantially the same offending material previously published at a point of time before a policy incepts, while not barring coverage of offensive publications made during the policy period which differ in substance from those published before commencement of coverage.” (Id. at p. 1183, 96 Cal.Rptr.2d 136.)

Id. at *7, quoting Ringler.

The court’s discussion of why an advertising idea is implicated is of greatest interest.

[T]he use of another's advertising idea may include trademark infringement because to infringe upon someone's trademark, which is an advertising device, one improperly uses another's advertising idea to draw the consumer's attention to a product. Accordingly, we answer the third certified question, yes.

Id. at *6.

The court found that a trademark may be a product slogan and that trademark infringement potentially relates to the improper use of another slogan.

It finally found that a trademark infringement may occur when a party infringes upon another’s trade dress or slogan in its advertisement because “a trademark may serve as an element to the overall trade dress of a product.” Id. at *6.

insured in an underlying suit asserting mislabeling of products and trademark violations. This because all of the underlying complaints were based on the insured’s use of the trademark.

The court also noted Parameter Driven Software, Inc. v. Mass. Bay Ins. Co., 25 F.3d 332, 337 (6th Cir. 1994), Global Computing, Inc. v. Hartford Cas. Ins. Co., No. 05-C-6753, 2007 WL 844618, at *4 (N.D. Ill. March 14, 2007) as well as Greenwich Ins. Co. v. RPS Prods., Inc., 882 N.E.2d 1202, 1212 (Ill. Ct. App. 2008) but a different result attended in NGK Metals Corp. v. Nat’l Union Fire Ins. Co., No. 1:04-CV-56, 2005 WL 1115925, at *15 (E.D. Tenn. Apr. 29, 2005). Although the court did not note this fact, the applicable Illinois or Michigan law cases cited, all apply a four-corners doctrine while Tennessee does not.

P & W’s complaint in the underlying action alleges two causes of action: the first for common law trademark infringement and the second for dilution and diminishment of P & W’s “famous mark” in violation of the Lanham Act.

The exclusion did not enumerate all intellectual property rights encompassed because it referenced the phrase “any intellectual property rights” citing Bragdon v. Abbott, 524 U.S. 624, 639 (1998) (noting that “the use of the term ‘such as’ confirms [that] the list is illustrative, not exhaustive”).

The question was whether the unfair competition count alleging infringement of common law rights also fell within the exclusion. The court took comfort from the reference in the exclusion that injury “arising out of any violation of any intellectual property rights” was excluded.

Federal trademark law does not preempt Maryland’s “broader consumer-oriented remedies provided by the common law of unfair competition.” Barnett v. Maryland State Bd. of Dental Examiners, 293 Md. 361, 379 (1982).

Id. at 437.

But for the alleged trademark violation, there would be no unfair competition claim. Notably, the court did not examine or evaluate whether there could be liability for unfair competition under the asserted claim, even if the trademark infringement claims were deemed not viable because the trademark rights did not vest in the claimant as asserted or the trademark was found to be invalid as presumably the answer to the complaint asserted as affirmative defenses.

The court also did not address with any clarity whether the mere use of P & W’s registered name, “Marvin J. Perry & Associates,” logo, website and subsequent launch of a similar-sounding website, www. marvin j perryinc. com “could be viewed as disparagement of P & W’s separate identity from MJP.”

Id. at 437.

No fact allegations of tarnishment associated with claims of trademark dilution were specifically alleged or referenced by the court and the presumption of disparagement argued by the insured was not even evaluated by the court following a brief mention.

There could be no tortious interference claim because there was no contract involved and tortious interference for business relationships required some underlying factual assertions equivalent to defamation, injurious falsehood, fraud, etc., which the court found absent.

The court deduced that the interference count was solely based on alleged misrepresentations that MJP was the same entity as P & W through its use of P & W’s trade name and trademark, in effect blurring, not tarnishment as the wrongful act was based purely on alleged wrongful use of trademark rights.

The cases cited by the insured were inapposite because they did not address the applicability of analogous intellectual property exclusions. To wit State Auto. Prop. & Cas. Ins. Co. v. Travelers Indem. Co. of Am., 343 F. 3d 249, 253, 260 (4th Cir. 2003) and AMCO Ins. Co. v. Lauren-Spencer, 500 F. Supp. 2d 721, 729 (S. D. Ohio 2007).

The mere use of a letterhead and logo were no more than directed solicitations to the United States Department of State which are not considered “widespread dissemination.” See Monumental Life Ins. Co. v. U.S.F. & G., 94 Md. App. 505, 526-27 (1993). And in any event, the advertisements that fall within the exclusion for use of a “trademark, trade name … or other designation of source” thereby relieving Hartford of its defense duty.

“Misappropriation of advertising ideas” or “style of doing business” offense was implicated by the trademark infringement claim as the certified question queried.

We conclude that the absence of the word “trademark” in the CGL policy does not foreclose the possibility that trademark infringement falls within the scope of the advertising-injury definitions in General Casualty's policy. First, the policy provides coverage for injuries “arising out of” the advertising-injury definitions, which expands the scope of the policy language since this court has defined “arising out of” broadly as “originating from,” “growing out of,” or “flowing from.” Dougherty v. State Farm Mut. Ins. Co., 699 N.W.2d 741, 744 (Minn.2005). Second, the Minnesota rules of insurance policy interpretation require policies to be read in favor of finding coverage, and require courts to look past the legal nomenclature to the underlying allegations. Finally, the duty to defend applies to claims that “arguably” fall within the policy, and if insurance policy language is susceptible of more than one meaning, it must be given the meaning that favors coverage.

Id. at *3.

Noting that the only other supreme court that reached a similar view, it found Acuity v. Bagadia, 750 N.W.2d 817, 827 (Wis. 2008) persuasive. Adopting the broader definition of advertising in accord with the Acuity court’s reasoning, it stated:

[W]e interpret the term “advertising” . . . as: “any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business.”

Id. at *6.

This opinion reflects a modern trend broadly construing the term “advertising.” It circumvents misstatements in earlier cases that improperly asserted that the majority of courts (Id. at 26) had narrowly interpreted “advertising” as “widespread promotional activities usually directed to the public at large”. Hameid v. National Fire Ins. Co. of Hartford, 31 Cal. 4th 16, 24 (2003). See The Proper Definition of “Advertising” in an “Advertising Injury” Coverage Case - a Critique of the California Supreme Court’s Decision in Hameid v. National Fire Ins. Of Hartford, 31 Cal. 4th 16, 1 Cal. Rptr. 3d 401, 71 P.3d 761 (2003) [Published in Mealey’s Litigation Report: Intellectual Property Vol. 12, Iss. #1 also published in Mealey’s Emerging Insurance Disputes Vol. 8, Iss. # 20; Mealey’s Litigation Report: California Insurance Vol. 3, Iss. # 5].

The “use of another’s advertising idea in your ‘advertisement’ ” offense was implicated, thus the court found it unnecessary to decide whether there was an infringement of copyright, trade dress or slogan at issue. It reasoned,

Tolkien also alleged that Hobbit Travel used the word “hobbit” in its domain name and on its website to attract the national public's attention to its travel agency, and capitalize on the goodwill surrounding the Tolkien works. These uses of the word “hobbit” by Hobbit Travel were made in connection with the solicitation of travel business within our broad reading of “advertisement”; thus, Tolkien's damages arose out of Hobbit Travel's “use of another's advertising idea in [its] ‘advertisement.’ ”

Id. at *7.

A vigorous dissent by Chief Justice Magnuson found that the court had too broadly stretched the meaning of “arguably” bring into question the previous views expressed in Franklin v. W. National Mut. Ins. Co., 574 N.W. 2d 405, 407 (Minn. 1998) (citing Ross v. Briggs and Morgan, 540 N.W. 2d 843, 847 (Minn. 1995)). Id. at *9.

"[N]o reasonable jury could find that Great Northern was not prejudiced by Guaranty Bank's inexplicable failure to give prompt notice [until over 90% of the defense fees were incurred and the preliminary injunction motion had been lost]. RTE Corp. v. Maryland Casualty Co., 74 Wis.2d 614, 247 N.W.2d 171, 178-79 (Wis.1976), and cases cited there; Sanderfoot v. Sherry Motors, Inc., 33 Wis.2d 301, 147 N.W.2d 255, 259 (Wis.1967)."

Id. at *2.

The court also noted that the leniency towards insureds demonstrated by the Wisconsin legislature and Supreme Court were to individuals, not substantial commercial enterprises. The court noted, however, that the contra proferentum rule has been exercised for the benefit of large corporations as well as individuals as the Supreme Court of Wisconsin had not spoken on topic.

Guaranty Bank argued in effect that there was no harm, no foul, because the insurer would have denied on grounds other than late notice. The court elected to analyze whether a duty of defense arose to determine if that would conclusively bar policy benefits even if notice was found appropriate. The court found no arguable coverage evidence on the face of the complaint.

The court noted:

"There is an express exclusion for advertising injury to 'any intellectual property law or right' 'other than one described in the definition of advertising injury' – that is, other than (so far as relates to this case) a registered trademark. So unless Midwest Guaranty Bank was suing for infringement of a registered trademark, any damages it obtained would not be covered by Great Northern's policy."

Id. at *4.

The court found it was clear that the suit was for infringement of an unregistered trademark. The court found it significant that the suit was for a common law claim of trademark infringement and unfair competition under Michigan common law. The court noted:

"There is no such animal as a registered common law trademark. Dana Shilling, Essentials of Trademark and Unfair Competition 4 (2002); Richard Raysman et al., Intellectual Property Licensing: Forms and Analysis § 4.02[4], p. 4-10 (1999). If it is registered, it is registered pursuant to a statute, either the Lanham Act or a state statute. Michigan has a trademark registration statute, Mich. Comp. Laws §§ 422.34, 429.33, .35, .42, and it is not preempted by the Lanham Act because it does not limit federal rights. Attrezzi, LLC v. Maytag Corp., 436 F.3d 32, 41-42 (1st Cir.2006); 3 McCarthy on Trademarks and Unfair Competition § 22:2, p. 22-3 (4th ed.2004). But Guaranty Bank did not sue under the statute, and so far as appears never registered its mark under any law."

Id. at *5.

The court also noted there was no trademark number referenced on the Civil Cover Sheet, which is a contemporaneous publicly filed document even though it is not part of the complaint. Id. at *5.